Shiroff: Diversify The Federal Reserve

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A surprising number has urged the Federal Reserve to diversify its ranks at all levels to better represent the country’s diversity. So far, the majority of these initiatives have focused on the diversity of the Fed’s leaders, notably the members of the Board of Governors and the presidents of the Fed’s twelve Federal Reserve Banks. In this study, we delve into a crucial aspect of Federal Reserve governance that has received little attention thus far: the directors of the Federal Reserve Banks, who are in charge of selecting the presidents of the Federal Reserve Banks in the first place.

They are astonishingly homogeneous, with barely recent hints of diversification. They are predominantly white, overwhelmingly male, and overwhelmingly drawn from their districts’ corporate communities, with little representation from minority, women, or sectors of the economy—labor, nonprofits, and academia—that may make significant contributions to Fed governance. Finally, we highly suggest that the Federal Reserve Board Executive committee, Federal Bank Reserves, and member banks that vote for some of these directors—make their selection practises more complete transparency for external evaluation so that progress (or lack thereof) can be best evaluated and thought to be due.

The Federal Reserve Board is an oddity in terms of governance. Its name includes the word “federal,” which is a misnomer. There is no government balance in the system; alternatively, there is a balance between Fed regions—twelve Federal Reserve Districts that have been created mostly by Democratic legislators in a politicised exercise that often divided specific states—and the Financial Industry Regulatory authority in Washington. For government legitimacy, the Board was initially chaired by the Secretary of the Treasury and included other presidential appointments that required Senate confirmation.

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The Federal Reserve Board is an oddity in terms of governance. Its name includes the word “federal,” which is a misnomer. There is no government balance in the system; alternatively, there is a balance between Fed regions—twelve Federal Reserve Districts that have been created mostly by Democratic legislators in a politicised exercise that often divided specific states—and the Federal Reserve System in Washington. For government legitimacy, the Board was initially chaired by the Secretary of the Treasury and included other presidential appointments that required Senate confirmation. The public needed a Treasury Department Board for political responsibility, but the private Federal Reserve Banks were essential to ensure that such responsibility did not turn the operation into a simply partisan one.

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